Controversy surrounds a ruling to conduct a Russian hearing in England

A UK court decision that Russian litigant Michael Cherney would be unlikely to receive a fair trial in Russia could lead to a flood of claims against Russian individuals and businesses in the UK. Natalia Chumak and Guy Wilkes explain...

A meeting between two well-known Russian Businessmen in 2001 has led to a legal dispute that will be heard in an English Court, despite all the related events involving companies trading out of the eastern European country.

The case revolves around a business share deal contained in two written documents. In the first, Oleg Deripaska agreed to pay Michael Cherney $250 million up front for his shareholding in Russian company Sibal. In the second, Deripaska made an additional pledge to hold 20% of the shares in another business, Rusal, on trust for Cherney, and to sell them between two specified dates. The proceeds would then be paid to Cherney, less the $250 million.

After the deal had been struck, Rusal merged with two companies to form United Company Rusal (UCR). The move gave original Rusal shareholders a 66% stake in the new venture. According to Cherney, this should have resulted in Deripaska holding 13.2% (20% of 66%) of UCR in trust for Cherney. However, Deripaska denied that the second document had been produced in the original meeting with Cherney, claiming no such agreement was in fact made.

It was at this point that Cherney turned to the High Court in England to legally force Deripaska to honour what he claims was agreed, also suing for damages.

Destined for Russia
At face value there appears to be little reason for the initial hearing to be conducted outside Russia, causing the court to consider whether England was indeed the proper place for Cherney to press his claim. In reaching its decision, the court turned to the case of Spiliada [1987] AC 460, which laid down a two-stage test relating to the issue.

The first stage is that the claimant must show that "each cause of action in which he claims stands a reasonable prospect of success": a test Cherney was able easily to satisfy. Stage two, however, was more difficult, relying on the court identifying "the forum which the case can suitably be tried for the interests of all the parties and the ends of justice".

Unfortunately for Cherney, he was unable to show the court clearly that England was more appropriate than any other available location for the trial. Consequently, the court ruled in favour of Russia as the "natural forum"..

One last hope
However, even if England was not the natural forum, if Cherney could establish that substantial justice was unlikely to be done if the trial was held in Russia, the English court would grant Cherney his wish to be tried in England.

On studying the evidence, the judge controversially ruled that given the closeness of the link between the Russian State and Deripaska, the alignment of their interests, and the size and importance of Rusal, the Russian Government may well regard the case as being sufficiently important to justify "encouraging" the courts to see their way to rejecting Cherney's claims. This was sufficient to displace Russia as the most appropriate place to hold the trial.

Further supporting the decision, the court believed Cherney would be at risk of assassination if the case was to proceed in Russia, and that he could face criminal prosecution for what, on his evidence and the reported remarks of Deripaska's lawyer, would essentially be trumped up charges.

In choosing England over Russia, the judge also took into account the fact that the parties are not strangers to England, with Deripaska, in particular, owning a house in London. What's more, Cherney and Deripaska struck whatever agreement they had made in London.

A special case
The ruling is likely to lead to an increase in applications to the English Court to bring proceedings against Russian parties, particularly when the Russian State or courts are involved. However, the case should certainly not be regarded as giving rise to a presumption that where a choice exists, the English court is always to be preferred over its Russian counterpart. Special factors in this case were Cherney's risk of assassination or wrongful arrest in Russia, and the especially close relationship between Deripaska and the Russian State.

Long and expensive jurisdiction battles are frequently a feature of international disputes.  This case is a further example. While the risk of such battles cannot be completely avoided, it can be mitigated by including valid and binding jurisdiction or arbitration clauses in every written contract - something lacking in this case.

Natalia Chumak

Guy Wilkes